Q: What is the best vehi­cle for saving/investing for my chil­dren that can be eas­ily trans­ferred to them? My goal is to prime their own retire­ment sav­ings. Are there any options with tax ben­e­fits? I already have col­lege cov­ered, I am talk­ing about non-education. Thanks, –Kris, California

A: Great idea Kris! I love the con­cept of build­ing the retire­ment sav­ings habit in your kids at a young age. Talk about a great gift!

Younger Chil­dren

For chil­dren too young to be in the work force, you have a cou­ple good strate­gies I’ll take a look at:

UGMA/UTMA (Uni­form Gift/Transfer to Minors Account) – These accounts offer some tax advan­tages but the money becomes the child’s at the age of major­ity – usu­ally 18 or 21 depend­ing on the State of res­i­dence when you set up the account. Still, they can be a good way to get the child started if you are able to guide them once the funds become theirs.

Gift­ing Ear­marked Port­fo­lio – This strat­egy involves build­ing an invest­ment port­fo­lio in your name that you ear­mark for gift­ing to chil­dren in the future. Essen­tially it is the same as any other invest­ment pro­gram you would run except that you would exclude it from your assets as you plan your future since you intend to give it away. Under cur­rent law, you are able to gift $14,000 per year with­out gift tax con­se­quences. Gift split with your spouse (if applic­a­ble) and you can dou­ble this amount to $28,000. Since the account is set up in your name (or joint with your spouse), this option offers the flex­i­bil­ity of being able to change your mind about the pur­pose of the money.

Sav­ings bonds – I got them as a kid, maybe you did too? Today the trea­sury offers I-Savings Bonds a safe invest­ment that can be set up in your child’s name, tax deferred and offers a return that is tied to infla­tion. Visit trea​sur​di​rect​.gov to learn more.

Work­ing Teens

If you have teenagers that are earn­ing money and file a tax return (yes, you can file a return even if your only income is from babysit­ting and mow­ing lawns!), I like the idea of con­tribut­ing to Roth IRAs for them. Under cur­rent law, what they earn and report up to a max­i­mum of $5,500 per year could be con­tributed to a Roth IRA. The poten­tial for tax free with­drawals at retire­ment is pretty entic­ing with decades of com­pound returns on your child’s side.

USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. The information is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional representation before acting on any information you may have found in this article. This article is in no way attempts to provide advice that relates all personal circumstances.

Examples given are hypothetical illustrations and not an indication of the benefits or features of any USAA product. You should seek policies and advice based upon your own particular circumstances. Sample loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend.

Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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About the Authors

Joseph “J.J.” Mon­ta­naro is a CERTIFIED FINANCIAL PLANNER™ prac­ti­tioner at USAA with more than 19 years of expe­ri­ence in the finan­cial ser­vices indus­try. JJ also served in the U.S. Army for six years on active duty, and in 2009, he retired as a lieu­tenant colonel in the U.S. Army Reserve.